CBA Hypomonitor: volume of mortgages granted is the highest since the beginning of 2022
The average mortgage rate fell to 4.98 percent, the lowest in two years
Prague, 13 September 2024 - In August this year, banks and building societies granted mortgage loans worth more than CZK 32 billion, of which nearly CZK 26 billion were actually new loans. Compared to July, mortgage activity increased by a third. August activity in the mortgage market is usually stronger, but even after taking this effect into account, this August's month-on-month increase was double-digit. In year-on-year terms, growth accelerated to 130% from 109% in July. August mortgage originations were the highest since January 2022, illustrating the continued recovery of the mortgage market, although the amendment to the law governing early repayment conditions also had a one-off effect. The average mortgage rate for new loans fell below the 5% threshold for the first time in more than two years, at 4.98% after 5.07% in July. The average mortgage size further increased to 3.95m. CZK. The above information comes from the CBA Hypomonitor, which captures data from all domestic banks and building societies providing mortgage loans.
The volume of mortgages granted increased significantly in August
According to the CBA Hypomonitor, banks and building societies granted mortgages to households in August in the volume of CZK 32.4 billion. The volume of mortgages granted thus increased by a strong CZK 8.6 billion, or 36%, month-on-month. Although August activity on the mortgage market is usually higher than in July, even after taking into account this seasonality, the month-on-month increase was double-digit. August's mortgage origination volume was the strongest this year and the strongest since January 2022. However, August's development was also positively influenced by the change in the Consumer Credit Act, which may have led many households to seek to conclude or refinance a mortgage contract under the original terms during August. The year-on-year growth in the volume of mortgages granted accelerated from 109% in July to 130%. From January to August, the volume of mortgage originations nearly doubled year-on-year, with the number of mortgages originated up 60%.
"The volume of newly granted mortgage loans reached very high values in August mainly for two reasons. The first is the general recovery in demand for housing finance this year, and the second is the effectiveness of the amendment to the Consumer Credit Act as of 1 September, which caused some clients to try to sign mortgage contracts before 31 August so that they would not be subject to the new rules for early repayment at least for the first fixation period," says Ondřej Šuchman, mortgage manager at Komerční banka.
Table 1: Summary of mortgage origination volumes and average interest rates for August 2024
|
|
Volume |
Number |
Rate |
|
|
|||
|
Total |
32,4 |
8 522 |
4,97 |
|
New loans |
25,7 |
6 498 |
4,98 |
|
Of which: |
|
|
|
|
for purchase |
20,1 |
5 051 |
4,97 |
|
for construction |
4,5 |
1 123 |
4,96 |
|
Other |
1,0 |
324 |
5,21 |
|
Refinanced from another institution |
5,7 |
1 716 |
4,90 |
|
Refinanced internally |
1,0 |
308 |
4,98 |
|
Source. |
|
|
|
The volume of actual new mortgages granted without refinancing reached CZK 25.7 billion in August. The volume thus increased by CZK 6 billion, i.e. 31% month-on-month. The number of newly granted mortgages reached 6,498, which represents a 25% month-on-month increase and the highest value since March 2022. The volume of refinanced loans (internally or from another institution) increased by CZK 2.6 billion month-on-month and amounted to CZK 6.7 billion. The share of refinanced loans in the total volume of mortgages granted increased from 17.4% in July to 20.7%, which is also due to changes in the early repayment conditions effective from September this year.
"We are currently seeing a recovery in the mortgage market, although rates are not falling as fast as on savings accounts. A dramatic drop in rates is not expected even at the end of the year. One of the reasons for this may be the fact that some processors are already announcing longer approval periods in view of the overload of loan applications and their real capacities," says Michal Noha, Director of Product Management, Raiffeisen stavební spořitelna.
The average mortgage rate has fallen again, after more than two years it is again below the 5% threshold
After rising in July, the interest rate on actual new mortgage loans has fallen again, by around a tenth of a percent from 5.07% to 4.98%, bringing it below the 5% threshold for the first time in more than two years. The decline reflects the evolution of market interest rates for longer maturities, which have started to fall again since June and their average level in recent months has been the lowest this year. Realised interest rates, as opposed to bid prices, reflect the actual real interest rate on signed mortgage contracts.
Chart 1: Average mortgage rate - new business
Mortgage rates reacted with a lag of several months mainly to the development of market interest rates for longer maturities. They are influenced by a number of factors - not only the expected development of CNB base rates, but also the inflation outlook, economic developments and the dynamics of similar interest rates abroad. The aforementioned market interest rates for longer maturities [1] have started to rise again since March of this year after a gradual and fluctuating decline. However, this trend reversed during June and intensified in recent months, when markets began to bet again on a faster decline in Fed funds rates. As a result, domestic longer-dated rates are now at their lowest levels this year and also at their lowest levels since late 2021. They are roughly 0.15 percentage point lower compared to last month.
[1] These are mainly long-term interest rate swaps (IRS), which reflect the price of money at longer maturities, such as 2 to 10 years.
"The recent development of market rates for longer maturities again opens up room for future mortgage rate cuts, as rates have reached the lowest levels this year and are also the lowest since the end of 2021. Mortgage rates always react to this development with a few months' delay, and if the market does not reverse, the further slight decline in mortgage rates should continue in the coming months," says Jakub Seidler, chief economist at the Czech Banking Association.
The average mortgage size increased further
The average mortgage size continued to rise in August, from CZK 3.77m to CZK 3.95m. CZK. Since April, the average mortgage size has thus surpassed the previous record level of CZK 3.46 million set in November 2021. The gradual decline in mortgage rates or the relaxation of macroprudential income limits by the CNB, together with the gradual growth in real household incomes, are making it possible to achieve a higher mortgage. The mortgage rate is also related to the development of property prices, which were almost 10% higher in Q1 than in the last quarter of 2021 and continued to rise in Q2.
The scenarios for the evolution of monthly repayments for different mortgage maturities are shown in Table 2. It shows that a rise in mortgage rates by one percentage point means an increase in the monthly instalment of around CZK 2 000 for an average mortgage size. Compared to the 2% interest rate that was common on the market in earlier years, the current mortgage rate means an increase in the monthly instalment for an average mortgage of approximately CZK 6,000. [2] A mortgage payment of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,500.
[2] The table is available in the xls file attached on the CBA Hypomonitor website
Table 2: Average monthly mortgage payment by length of repayment and interest rate
|
Average size of new mortgage in CZK: |
|
|
3 948 872 |
||||
|
Average interest rate in %: |
|
2,0 |
3,0 |
4,0 |
4,98 |
6,0 |
7,0 |
|
|
|
|
|
Monthly instalment: |
|||
|
Mortgage maturity in years: |
15 |
25 411 |
27 270 |
29 209 |
31 187 |
33 323 |
35 494 |
|
20 |
19 977 |
21 900 |
23 929 |
26 018 |
28 291 |
30 616 |
|
|
25 |
16 737 |
18 726 |
20 844 |
23 040 |
25 443 |
27 910 |
|
|
|
30 |
14 596 |
16 649 |
18 853 |
21 151 |
23 675 |
26 272 |
|
Source. |
|||||||
|
Note: The colored column corresponds to the interest rate of the latest CBA Hypomonitor, other rates are illustrative |
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Mortgage market activity drops by a quarter for the full year 2023
For the whole year 2023, banks and building societies granted mortgage loans in the volume of CZK 150 billion, of which net new loans without refinancing amounted to CZK 124 billion. This was a year-on-year fall of 24%. This is mainly due to the fact that the first half of 2022 was still strong in terms of mortgage originations and the higher comparative base from this period is thus affecting the year-on-year comparison. As a result, there were 50% fewer mortgages originated year-on-year in the first half of 2023 and over 50% more in the second half of 2023. Compared to the pre-pandemic years 2017-2019, the volume of mortgages granted in 2023 was roughly one-third lower.
Chart 2: Annual volume and number of mortgages granted between 2021 and 2023
CBA publishes summary statistics for the entire banking market
The Czech Banking Association, in cooperation with its member banks, publishes new aggregate statistics on the housing market. These are mainly the volumes and numbers of newly granted and refinanced mortgages and the respective interest rate. These statistics are published by the CBA in aggregate form for the entire banking sector on a regular basis around mid-month. All domestic banks and building societies providing mortgages in the Czech Republic participate in the survey. The data are available from January 2020 in the attached file on the website www.cbaonline.cz, where the relevant statistics can also be found separately for banks and building societies. The above figures are for the sector as a whole, which can also be viewed in a simple graphical form on the cbamonitor.cz website.
Methodology of the CBA Hypomonitor
The CBA Hypomonitor divides mortgage loans granted by banks and building societies to households into several categories in order to distinguish new loans from refinanced or internal refixations. New loans are then reported in categories according to the purpose of the loan:
1. new loans
These are loans whose full volume enters the economy for the first time. This category does not include loan consolidations or loan refinancing. It is divided into three categories:
- Purchase of real estate
- Property construction - including property renovation
- Other new arrangements - only new loans that are in no way related to the purchase or construction of the property, e.g. so-called American mortgages, settlement of a JVM, repayment of the purchase price, settlement of an inheritance share, settlement of a cooperative share, etc.
2. Refinanced loans from another financial institution
These are loans that have been originated by refinancing one or more loans from a financial institution other than the reporting one. Irrespective of the amount refinanced and regardless of the amount of any increase, the total amount of the newly originated loan is reported in this category.
3. Loans increased or internally refinanced
These are loans that were already part of the reporting entity's portfolio in the previous reporting period and have undergone one of the following changes during the reporting period:
- an increase in the agreed amount
- changes such that the original loan has been refinanced/converted into a new loan within the reporting entity. This is a genuinely new contract and not, for example, just a new arrangement in the context of a refixation of an existing contract. Therefore, the volume of such loans in the CBA statistics is lower than 'other new arrangements' in the Czech National Bank statistics.
The following banks and building societies provide data for the CBA Hypomonitor: Air Bank, Banka Creditas, Česká spořitelna, ČSOB, ČSOB Stavební spořitelna, Fio banka, Hypoteční banka, Komerční banka, mBank, Modrá pyramida, MONETA Money Bank, MONETA Stavební spořitelna, Oberbank, Raiffeisen stavební spořitelna, Raiffeisenbank, Stavební spořitelna České spořitelna, UniCredit Bank.